Euro Falls to Mid-July Low Against Pound on France Debt Fears

The Euro continued its downward trend against the British Pound on Monday, reaching its lowest level since mid-July. This decline is driven by deepening fiscal and political concerns across Europe, particularly in France. A sharp sell-off in French government bonds has revived fears of Eurozone fragmentation, weighing heavily on the Euro (EUR). At the time of writing, the EUR/GBP exchange rate stands at around 0.8478, down 0.24% on the day, after hitting an intraday low of 0.8458.

Analysts at MUFG note that the Euro has weakened due to intensifying fears over destabilizing financial conditions in the Eurozone. The sell-off in French government bonds has widened the yield spread over German Bunds to just over 140 basis points, nearly 60 basis points wider than before the summer. This rapid sell-off has triggered concerns over the re-emergence of fragmentation risks in the Eurozone, which could hinder the transmission of monetary policy.

ECB Chief Economist Philip Lane acknowledged the rise in long-term rates, stating it will slow growth and reduce pass-through more than projected. He emphasized that policymakers are on a "middle path" and a measured response is appropriate, while warning of upside risks to inflation and downside risks to growth from a second wave of the energy supply shock.

On the data front, final Eurozone figures showed that the HCOB Composite PMI rose to 53.1 in September from 52.0, while the Services PMI climbed to 53.0 from 51.6. Meanwhile, the UK S&P Global Composite PMI was revised up to 52.0 from the preliminary estimate of 51.7, with the Services PMI coming in at 52.1, also above the initial reading of 51.7.